Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2010-05-12
Revision-Date: 2011-10-14
Number: 10-049/2
Author-Name: Gerdie Everaert
Author-Workplace-Name: SHERPPA, Ghent University
Author-Name: Lorenzo Pozzi
Author-Workplace-Name: Department of Economics, Erasmus University Rotterdam
Title: The Stickiness of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis
Abstract: This paper examines the sources of stickiness in aggregate consumption growth. We first derive a dynamic consumption equation which encompasses many recent developments in consumption theory: habit formation, intertemporal substitution effects, consumption based on current income, and non-separabilities between private consumption and both hours worked and government consumption.Next, we estimate this dynamic consumption equation for a panel of 15 OECD countries over the period 1972-2007 taking into account endogeneity issues and error cross-sectional dependence. To this end, we develop a generalised method of moments version of the common correlated effects pooled estimator and demonstrate its small sample behaviour using Monte Carlo simulations. The estimation results support the labour-consumption complementarity hypothesis but not the other forms of stickiness.
Classification-JEL: C23, E21
Keywords: Sticky Consumption, Dynamic Panel, Cross-Sectional Dependence
File-Url: https://papers.tinbergen.nl/10049.pdf
File-Format: application/pdf
File-Size: 440056 bytes
Handle: RePEc:tin:wpaper:20100049